A quick guide to invoice finance
Invoice finance, also known as accounts receivable financing, is a funding solution for businesses that allows them to free up cash tied up in unpaid invoices. Instead of waiting for customers to pay, businesses can sell their outstanding invoices to a finance company and receive a percentage of the invoice amount upfront.
This can improve cash flow, provide working capital, and enable businesses to continue their operations without cash flow disruption. There are two main types of invoice financing: factoring and discounting. Factoring involves a finance company taking over your sales ledger and collecting payments directly from your customers. Invoice discounting, on the other hand, allows you to maintain control of your sales ledger and you collect the payments yourself.
Here's an overview of what a invoice finance typically offers:
- Loan amounts from $2,000 - $2,000,000
- Flexible loan terms: 3 months to 5 years
- repayment frequency: weekly, fortnightly, or monthly
- Fixed interest rates from 7.99%
- Interest rates customized to your financial profile
Want to skip ahead?
This guide is broken down into the following sections. Click a link if you want to skip ahead.
- 1.What can I use a invoice finance loan for?
- 2.How much can I borrow for a invoice finance loan?
- 3.invoice finance Loan Repayment Calculator
- 4.Am I eligible for a invoice finance loan?
- 5.How to apply for a invoice finance loan?
- 6.How to get the best invoice finance loan for you?
- 7.Frequently Asked Questions
What can I use a invoice finance for?
Invoice finance can be used for several purposes including improving cash flow, funding growth initiatives, managing seasonal fluctuations, or even to meet urgent cash needs. It can provide working capital for businesses by releasing cash tied up in unpaid invoices, thus helping them continue their operations smoothly. Businesses may use the funds to pay suppliers, manage payroll, invest in new resources, or any other operational expenses.
Boosting Cash Flow
Invoice finance is often used to enhance a business's cash flow, providing access to funds tied up in unpaid invoices.
Purchasing Inventory
Businesses can use the funds from invoice finance to purchase inventory, ensuring they can meet customer demand.
Investing in Equipment
Invoice finance can provide the capital needed to invest in new equipment or technology, enhancing productivity or expanding services.
Hiring Staff
The immediate access to cash from invoice finance can be used to hire additional staff for business growth.
Debt Consolidation
Businesses might use invoice financing to consolidate other higher-interest debt into one manageable payment.
Expanding Operations
Businesses may use invoice finance to fund expansion, such as opening new locations or entering new markets.
Paying Suppliers
Invoice finance can be used to pay suppliers promptly, helping to maintain good relationships and possibly qualifying the business for early payment discounts.
Covering Seasonal Fluctuations
Businesses with seasonal sales patterns often use invoice finance to manage cash flow during slow periods.
Managing Unexpected Expenses
Invoice finance can provide a safety net for managing unexpected expenses or financial emergencies.
Marketing and Advertising
The funds from invoice finance can be invested into marketing and advertising efforts to increase sales and customer reach.
How much can I borrow for a invoice finance?
The amount you can borrow with invoice financing in Australia will primarily depend on the value of your outstanding invoices. Invoice financing, also known as invoice factoring or accounts receivable financing, is a method of borrowing money based on the amounts due from your customers.
Typically, lenders in Australia will advance you up to 80-90% of the total value of your outstanding invoices. So, if you have $100,000 in unpaid invoices, you could potentially receive an advance of $80,000 to $90,000. Once the invoices are paid, the lender will give you the remaining balance, less fees and interest.
This means that the borrowing capacity is linked directly to your sales. As your business grows and the amount in unpaid invoices increases, so too does your ability to borrow against those invoices.
The exact amount you can borrow will also depend on the creditworthiness of your customers, since they are the ones who will ultimately be paying the invoices. If your customers have a strong track record of paying on time, you may be able to borrow more.
As with any form of business finance, it's important to carefully consider the costs and benefits of invoice financing and to only borrow what you can afford to repay.
Business Loan Repayment Calculator
To estimate your monthly repayments and the total cost of the loan, input the loan amount, loan term and interest rate into the calculator below. This helps you plan your budget and choose the most suitable loan terms.
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Am I eligible for a invoice finance loan?
Understanding your eligibility can help you make informed financial decisions.
Lenders consider several factors when assessing your eligibility, including your credit score, income, debt-to-income ratio, age, residency, and required documentation.
While meeting the eligibility criteria doesn't guarantee loan approval, having a good credit score, stable income, and a positive financial profile significantly improve your chances.
You are eligible to apply for a invoice finance loan if you:
- ✔Are over the age of 18
- ✔Are an Australian citizen or permanent resident
- ✔Have a regular source of income sufficient to meet the repayments
How to Apply for a invoice finance Loan
Applying for a invoice finance loan is straightforward and takes only a few minutes. Simply fill out our online form with some basic details, and you'll be on your way.
Once we receive your information, a representative will reach out to help you explore loan options from over 50 trusted Australian lenders.
If you're eligible for a invoice finance loan and are satisfied with the initial quote, here's what you’ll need to prepare:
- ✔ Passport or driver’s licence
- ✔ Proof of income and expenses (e.g., payslips, bank statements)
- ✔ Details of any current debts or loans
How to Find the Best invoice finance Loan for Your Needs
Choosing the right invoice finance loan involves understanding key factors like interest rates, fees, and repayment terms. Each aspect can impact the total amount you'll pay, so it's vital to make an informed decision.
Interest Rate
Lower interest rates reduce the total cost of the loan. Take time to compare rates from various lenders to secure the best deal.
Comparison Rate
Unlike the interest rate alone, this includes fees and charges to give you a clearer understanding of overall costs.
Early Payout
Find out if your loan allows early repayments without penalties, as this can save you significant interest costs.
Fees
Pay attention to application, ongoing, and early repayment fees. Opt for a loan with competitive and transparent fee structures.
Loan Term
Shorter terms mean higher monthly payments but less interest overall, while longer terms reduce payments but increase total costs.
Still have questions about invoice finance loan?
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